While PMI Increased…
The Organisation of Petroleum Exporting
Countries and its allies (OPEC+) on Thursday,
May 12, 2022 revealed that Nigeria’s private
sector has continued to gain momentum this
year. The purchasing managers’ index (PMI)
rose to 55.8 in April from 54.1 in March, which
is higher than the long-run series.
This pointed the sharp improvement in business conditions that have been building up for the past 22 months. Meanwhile, the strong recovery in the hydrocarbons sector might further bolster the economic recovery.
Yet the rising insecurity, domestic supply chain disruptions, localized food shortages and inflationary pressures – driven by both local and global factors – might still pose challenges and weigh on economic activity.
According to secondary sources, total OPEC-13 crude oil production averaged 28.65 mb/d in April 2022, higher by 153 tb/d m-o-m.
Crude oil output increased mainly in Saudi Arabia, Iraq and the UAE, while production in Libya declined.
Nigeria production decreased by 17 to 1,322 in April from 1,340 in March, Libya and Gabon production decreased by 161 to 913 in April from 1,074 in March and 15 to 194 in April from 209 in March respectively.
The United Arab Emirates (UAE) recent S&P Global UAE PMI stood at 54.8 in March 2022, unchanged from a month earlier, yet the reading pointed the 16th straight month of non-oil private- sector expansion.
On the policy front, the Central Bank of the United Arab Emirates (CBUAE) increased the base rate of the overnight deposit facility by 50bps to 2.25%, tracking the increase in the federal funds rate.
The Non- OPEC liquids production (including OPEC NGLs) is estimated to have decreased in April by 0.92 mb/d m-o-m to average 70.1 mb/d, but higher by 1.69 mb/d y-o-y.
Preliminary estimated decreases in production during April were mainly driven by Russia and Kazakhstan by 1.2 mb/d, while the US and Norway are expected to have grown in liquids output of 0.3 mb/d.
The share of OPEC crude oil in total global production increased by 0.4 pp to 29.0% in April compared with the previous month.
Estimates are based on preliminary data from direct communication for non-OPEC supply, OPEC NGLs and non-conventional oil, while estimates for OPEC crude production are based on secondary sources.
In the rig count Nigeria lost 4 counts to close at 70 in April from 74 in March, while, Libya, Iraq and Algeria lost by 8, 1, and 2 count to close at 7 from 15, 46 from 47 and 28 from 30 count respectively.
Elsewhere, the US dollar (USD) continued its strong performance, advancing for the fourth consecutive month.
The index increased by 2.3% m-o-m supported by an increasingly hawkish US Federal Reserve (Fed) and divergences in monetary policies.
The USD rally is particularly stronger against developed market (DM) currencies. The USD increased by 2.9% against the Euro and by another 2.9% against the Yen in the same period.
Both increases are mainly driven by a divergence in monetary policies as both the European Central Bank and the Bank of Japan continue to keep interest rates low while the Fed is aggressively hiking its policy rates in an attempt to curb inflationary pressure.
Meanwhile, the USD increased against the British pound by 2.9% m-o-m; despite the Bank of England’s tighter monetary policies, inflation continues to erode the purchasing power of the pound against the USD similar to Nigeria situation.
Meanwhile, the USD declined against the Brazilian real; Brazil increased interest rates to almost 12% last month and has continued to signal rate increases amid inflationary pressure.
The strengthening of the USD amid higher interest rates continues to ease inflationary pressure on the ORB.
Inflation (nominal price minus real price) fell for the second consecutive month, declining by 0.9% m-o-m.
In nominal terms, accounting for inflation, the price of the ORB went from $113.48/b in March 2022 to $105.64/b in April 2022, a 6.9% decline m-o-m.
In real terms (excluding inflation), the ORB went from $111.35/b in March 2022 to $103.53/b in April 2022, a 7.0% decline m-o-m.
Cowry Research notes that FG has to address issues around production output losses in order to meet up with its output quota, and benefit from the high crude oil prices which is very crucial for Nigeria’s exchange rate stability as foreign earnings increase.
Meanwhile, given the further rise in credit to private sector and government, we expect some level of improved economic activities that would be beneficial to Nigerians.